Bloomberg’s Enda Curran reports on the performance of India’s economy.

India sees its economy growing faster-than-estimated, providing some relief to the government of Prime Minister Narendra Modi ahead of national polls next year.

Gross domestic product will grow 6.6 percent in the year through March 2018, the Statistics Ministry said in a statement in New Delhi on Wednesday, increasing its Jan. 5 estimate of 6.5 percent. That also beats the 6.5 percent consensus estimate in a Bloomberg survey but is slower than the 7.1 percent expansion in the previous year.

"Investment revival as per this data looks very good. Since the growth is coming on a relatively low base you have to be careful in arriving at a broad conclusion," Devendra Kumar Pant, chief economist at India Ratings & Research Pvt Ltd., the local unit of Fitch Ratings, said by phone from New Delhi.

A slower expansion has built pressure on Modi to jump start economic activity before seeking re-election in 2019. His government boosted spending in rural areas in the Feb. 1 budget to assuage the anger of voters feeling the pain of an abrupt cash ban and a chaotic sales tax. Recent cases of alleged fraud in state-owned banks have further dented confidence and investor appetite.

Rate Outlook

GDP expanded 7.2 percent in October-December, fastest in five quarters. That compares with 7 percent in a Bloomberg survey and previous quarter’s 6.5 percent. Gross value added or GVA, which strips out subsides and includes production taxes, matched the survey estimate of 6.7 percent.

A survey showed manufacturing activity expanding at a slower pace. Nikkei India Manufacturing Purchasing Managers’ Index was at 52.1 in February, down from 52.4 in January.

Growth moderation relative to Reserve Bank of India’s estimate also makes the situation tricky for the central bank while reviewing interest rates on April 5. It turned hawkish in the last monetary policy review on Feb. 7 as inflation quickened and the government relaxed its budget deficit goals due to rising crude prices and subdued tax collections.

What our economists say....

Lower growth relative to RBI projections and a likely drop in inflation ahead could douse the central bank’s recent hawkish bias at the next policy. -- Abhishek Gupta said after the GDP data release

Inflation accelerated from as low as 1.46 percent in June to 5.21 percent in December before easing slightly last month. The central bank’s goal is to keep headline inflation close to 4 percent over the medium term.

As talks of a rate hike swirl, India’s bond markets, already battered by the worst sell-off in two decades, will face the heat.